Asia-Pacific telcos face ‘downgrade’, says Fitch
Asia-Pacific telecommunication operators’ leverage headroom is narrowing and this will likely put near-term pressure on some of their ratings, said Fitch Ratings.
The rating agency expects negative free cash flow to persist as intensifying competition weakens the ability to fund higher capital expenditure (capex) and spectrum investments from cash generation by operations.
“Rating headroom has narrowed over the past 12 months due to rising capex pressure and large shareholder returns.
“The near-term pressure on some of the ratings means balance sheets need to be cautiously geared. Most of the issuers in the portfolio are on ‘stable’ outlook,” it said in a report.
In its portfolio of 12 Asia-Pacific telcos, Fitch said PT Telekomunikasi Indonesia Tbk was the only company with high rating headroom.
SK Telecom Co Ltd, PT Indosat Tbk, Telekom Malaysia Bhd (TM) and Singapore Telecommunications Ltd have the least headroom.
“Their leverages were skirting close to their rating downgrade triggers, underscoring its ‘negative’ outlook on these companies,” said Fitch.
It said all of the companies faced mounting pressure to ramp up investment, except for TM, which planned to moderate capex by boosting its assets efficiency and seeking access from other telcos to support its mobile coverage.
Fitch said telcos with the financial flexibility to invest in fibre infrastructure and spectrum were poised to benefit from an increasingly data-centric business.
“4G/4G+ technology should be sufficient in most markets to support growing data demand.
“Nevertheless, telcos’ appetite for spectrum is unlikely to wane more so for 5G as companies seek to add network capacity and coverage to gain a leading edge against competition,” it said.
Fitch said monetisation of data services would be key to telcos’ cash flow generation, fuelling the medium-term strategy to diversify revenue and expand convergence capabilities.
“Monetisation is a challenge in most markets, although Indonesia and the Philippines are making progress in restoring earnings before interest, tax and amortisation growth, following years of stiff competition,” it added.